AI Dominates Israeli Tech Funding, Securing 89% of Capital Raised

Artificial intelligence has become the central focus of Israel's high-tech sector, attracting a significant majority of investment capital. In 2025, AI companies accounted for 89% of all capital raised in Israeli high-tech and 56% of funding rounds, according to the annual ecosystem report by the DatA-IL community in collaboration with research firm IVC. AI firms raised approximately $11.8 billion in 2025 across 499 rounds, a substantial increase from the roughly $7 billion raised in about 530 rounds in 2024. This represents a 69% surge in capital raised within a year, despite a 6% decrease in the number of funding rounds.

Out of 9,099 high-tech companies in Israel, 2,948 are classified as AI companies. However, the report introduced a distinction between general AI companies and 'Core AI' firms, which develop foundational models, AI infrastructure, or enabling technologies where AI is central to their development. Only 365 companies fall into this narrower 'Core AI' definition, highlighting the broadness of the 'AI company' classification. Guy Holtzman, founder of IVC, noted that the definition has become inclusive, making it difficult to describe the technological diversity and that the new methodology aims to differentiate between companies integrating AI and those developing core AI technology.

Israeli venture capital funds increased their share of investment in Israeli AI companies to 48% in 2025, the highest proportion in a decade. While 1,281 funds and investors participated, 52% were foreign. However, foreign investors remain dominant in later-stage funding rounds (Series C and beyond), accounting for about 60% of investments. This indicates that while Israeli capital is significantly boosting the sector, large funding rounds still heavily rely on international investors.

AI companies also represent a substantial portion of exits. In the first half of 2026, exits in the AI sector reached approximately $43 billion, or 66% of total high-tech exits. This figure was significantly influenced by the large $35 billion Wix-Google acquisition, prompting caution in interpreting the jump as a uniform increase in deal volume or company valuations. In 2025, AI exits totaled about $6.3 billion, 31% of all high-tech exits.

The public sector is also embracing AI, with 97 AI projects underway in 33 government ministries, a 35% increase from the previous year. Over 13,000 public sector employees have received specialized AI training. The government is also developing a national data catalog on the Nimbus cloud infrastructure and advancing computing power and infrastructure initiatives. However, a significant gap persists between national goals for computing power, aiming for the equivalent of 100,000 AI accelerators within five years, and current capabilities, with the national supercomputer currently housing 1,000 B200 accelerators. A budget deficit of over 20 billion shekels also exists for advancing the field.

Israel's higher education system is expanding its AI talent pool, with the Council for Higher Education approving ten new AI study programs for the 2026-2027 academic year, expecting to enroll around 900 students. The report highlights Israel's leading position in academic-industry R&D collaboration. However, the primary challenge lies in developing advanced researchers and engineers capable of creating AI technologies, rather than just using them. The report notes a decline in academic R&D expenditure's share of national R&D spending, from 26% in 1991 to 5.5% in 2023, contrasting with an average 20% increase in OECD countries. It remains unclear whether AI's growth is expanding the overall Israeli high-tech ecosystem or merely shifting capital from other sectors, as detailed employment and activity data are still lacking.